In his newly published book “And then the Roof Caved In”, CNBC journalist David Faber details the creation of mortgage products by the investment and financial community which fueled the housing boom and ultimately lead to the bust. Faber also contends that the complicity of the ratings agencies was critical for these products to be created. He says, ” the great mortgage machine that Wall Street created simply would not have been able to operate” had the rating agencies not bestowed the triple A ratings. ”A structured product doesn’t exist until a rating is given.” i.e a mortgage product must have a rating before it can be sold on the open market. In the book he also details the high level of risk, leverage ratio, compensation, etc. which all fed the “machine”.
How does all of this affect real estate and Steamboat? New regulations are being enacted to address the excesses and lack of oversight which were part of the problem. Banks don’t want to lend fearing a wrong move will bring on the wrath of the government. Therefore, Lenders have increased loan qualification requirements. Development money is pretty much available only through private sources, obviously at higher rates. Jumbo loans ( purchase price over $675k, a significant part of the the Steamboat market) are just starting to become available but at a much higher interest rate. Additionally recently enacted regulation designed to address potential fradulant appraisal practices has an effect. As of May 1, communication is prohibited between appraissers and lenders and the buyer’s real estate agent. Appraisals must now be ordered through an appraisal management company. This additional step bogs down an already long and tedious process and allows appraisals prepared by those having little or no knowledge of the market. Closing dates are now extended to allow for the additional time required to receive the appraisal. Some lenders now require 2 and 3 appraisals. And unfortunately some contracts never close because of roadblocks encountered due to this new regulation. Bottom line, what happened on Wall Street (by a small and select group of individuals) affects everyone buying or selling real estate today, even in our small mountain resort community.